City Government

Capital Budget

This year, Mayor Michael Bloomberg promised to do what the last eight mayors could not - build a new cafeteria and gymnasium at the Queens Vocational and Technical High School in Long Island City.

The school was first promised the new facilities back in 1948. However, decades of delay at the Board of Education, budget cuts, and debate among lawmakers over the mission of vocational schools stalled the project. For years, students have held gym classes outside, even in the winter.

Construction crews finally broke ground this summer and the new building is slated to open in September 2005. Mayor Bloomberg, who says he has cut school construction costs by a third, is now promising to complete other long-neglected school projects across the city.

Earlier this month, the mayor announced the most ambitious school construction plan in the city's history. He said he would spend $13.1 billion over the next five years to build 76 new school buildings for nearly 63,000 students. However, many doubt that the school construction plan will become a reality since half of the money must come from the state government in Albany.

The school construction plan is part of the city's capital budget. The capital budget, which totals about $6 billion a year, funds construction and repairs for the infrastructure of the city - the sewers, bridges, roads, subway lines, and wires and cables that keep the city running.

The capital budget, many experts say, is complicated, prone to cost overruns and delays, and largely ignored by lawmakers, the press and voters. It is also a delicate balancing act: spend too little and the city's infrastructure crumbles; spend too much and the city plunges further into debt.

"It is a real dilemma," said Preston Niblack of the Independent Budget Office. "The key is to find a sustainable level of spending. And we really haven't been able to do that."

WHAT IS THE CAPITAL BUDGET?

The city's capital budget is separate from the annual $44 billion operating budget, which covers daily expenses. The annual capital budget is approximately $6 billion; the city contributes $5 billion of it and the rest comes from state and federal aid.

By definition, a capital project involves the purchase, repair or construction of physical items that cost over $35,000 and must last for at least five years. Most of the city's capital budget goes to three areas: 33 percent goes to sewage and water systems, 20 percent goes to schools, and 20 percent goes to transportation. (See graphic for how capital money is spent.)

Where The Money Goes: NYC $49 Billion Capital Budget For the Next Ten Years

Source: Ten-Year Capital Strategy 2004-2013

In order to plan for the long-term and keep track of current projects, the capital budget takes several forms.

Every other year, the city issues a ten-year strategy that outlines the needs and goals for construction and repair over the next decade. Each year, the mayor presents an annual capital budget that proposes what should be built in the coming fiscal year and the three following years. A more detailed report of what is currently being built or repaired, called the capital commitment plan, is issued three times a year. (See Capital Budget Components sidebar below.)

Unlike the operating budget, which is funded largely by taxpayer money, most of the money for the capital budget comes from debt, usually through the sale of bonds. This debt must be repaid over decades to come.

"The rationale for using debt to pay for capital projects is that future generations will use and benefit from them, and so they should pay part of the bill," said Douglas Offerman of the Citizens Budget Commission.

Each year, the borough presidents are given a small portion of the capital budget to spend in their borough. The amount is based on population and the size of each borough. For example, Manhattan receives about $11 million and Queens receives about $28 million a year.

MISSING THE BIG PICTURE?

The capital budget goes through a long approval process and community boards, city agencies, the City Council, the borough presidents and the mayor all have input.

Still, the capital budget is often overlooked for a number of reasons. First, it deals with infrastructure, things like streets, sewers, and tunnels that most New Yorkers take for granted and notice only when they break.

Some argue that the capital budget process is further complicated and obscured by government bureaucracy. The 59 community boards meet each fall to determine neighborhood priorities, but critics argue that they often just pick from a list of projects presented to them by the city. The City Council used to hold separate hearings on the operating budget and the capital budget, but now the two fiscal plans are covered in one hearing. Long-term needs are often overshadowed by immediate budget issues.

"It should be a dynamic, planning oriented process," said Richard Anderson of the New York Building Congress. "But it comes across now as a paper process, with various city officials going through the motions."

In addition, the capital budget does not receive the same press attention given to the annual expense budget battles when every lawmaker and interest group in the city fights for their piece of the pie. Last June, the day after the capital budget was approved, it earned just a few sentences in New York City's five daily newspapers.

Finally, the capital budget deals with the long-term projects that can take decades to complete and can often run over budget or be delayed. Only a third of the money authorized each year is actually spent during that time frame. The rest is carried over into the next year and the completion date for projects are postponed.

"Capital budgets are unpredictable," said Joe Weisbord of Housing First, who urges funding for housing construction. "One way to manage the budget is to slow down a project or roll the money from one year to the next. But these decisions have serious consequences for the long-term needs of the city."

BRINGING HOME THE BACON

One of the few times New Yorkers actually hear about the capital budget is when politicians hold "ground breakings" or "ribbon-cuttings" on a new project.

Each of the 51 New York City Council members can request money for specific capital budget projects, and they represent some of the few tangible accomplishments a council member can point to come election time.

Last year, Bronx Councilmember Oliver Koppell lobbied for money to design a new library at John F. Kennedy High School, and to improve the libraries of three other schools. Queens Councilmember Joseph Addabbo Jr. requested $500,000 to build a skateboard park in Rockaway. And Brooklyn Councilmember Erik Dilan allocated more than $1 million for a youth center in Bushwick.

Capital Budget Components

The capital budget is issued in several different forms:

A ten-year strategy which is used to set long-term planning goals.

The annual capital budget, which accounts for what the city actually spends in a fiscal year, but also estimates costs for each of the three subsequent years.

And the capital commitment plan, issued three times a year, to track the progress of projects.

Ten-Year Plan

Every other year, the city puts together a ten-year plan that it hopes will cover the city’s most pressing needs in the future. This strategy estimates what must be fixed, what must be built, and how the city will pay for the projects.

Capital Budget (with Three-Year Projections)

The annual capital budget also estimates costs in each of the three following years. The mayor and City Council approve the capital budget in June. In order to manage the budget, projects and money are often rolled over into subsequent years.

Capital Commitment Plan

The Capital Commitment Plan is issued three times a year and is used to track the progress of individual projects. Budget lines can either be individual projects (like repairing storm sewers in Rockaway) or money for similar projects in different locations (like building new homeless shelters across the city).

But just because a council member puts in a request, has it approved, and tells voters about it, does not mean the project actually gets built.

Two years ago, Brooklyn Councilmember Diana Reyna requested more than $1 million to build a new bathroom in Sternberg Park in Williamsburg. The budget item was approved, but the project was delayed in the city's process of soliciting bids from contractors. Dates for the start of construction were postponed three times, and work still has not begun.

"It is not just a matter of getting the funding approved, but continually monitoring the administration to make sure that the project is moving ahead," said Karl Camillucci, chief-of-staff for Reyna.

During a difficult fiscal crunch, local politicians say they sometimes find their pet projects slashed from the budget. Last year, for example, City Council members said the mayor eliminated capital money for library improvements and used it to plug a hole in the operating budget. The Office of Management and Budget said this is not true and all changes are agreed to by the administration and City Council staff.

STATE OF THE CITY

After the fiscal crisis of the 1970's, the city's infrastructure was in bad shape as many repair projects were delayed and new construction was abandoned.

The East River bridges became a poster child for municipal neglect. Repairs to the Williamsburg Bridge ended up costing about $600 million, some $400 million more than it would have if routine repairs had been made when needed.

During the 1990's, as the city's economy improved, the government spent more money - about $6 billion a year - to get its systems in working shape, or the technical term, in a "state of good repair."

But every improvement or new project is paid for with borrowed money and will cost New Yorkers for decades to come.

Every year, a significant portion of the city's annual expense budget goes to debt payments, the interests and principal on outstanding debt - and this amount grows each year. In 2002, the city paid $3.8 billion in debt payments. The Independent Budget Office estimates it will rise to $5.5 billion or nearly 20 percent of all tax revenue in the city by 2008.

Eventually, debt payments cut into services like senior citizen centers, library hours, and the number of teachers in the classrooms.

"Every dollar spent on debt service is a dollar that you don't spend on the day-to-day expenses of the city," said Douglas Offerman of the Citizens Budget Commission.

Today, facing another fiscal crunch and rising debt payments, the city is once again looking to cut costs.

But just keeping the city running is a monumental challenge. New York's infrastructure is old, it takes a beating from its 8 million residents, and it is still in need of billions of dollars in repairs. More than 40 precent of the capital money spent over the next ten years - some $17 billion - will go just to keeping the city's bridges, schools, streets, parks, and sewers in working shape.

While many housing advocates praised the mayor for his vision, they warned that the city's capital budget for housing was being slashed. The city's most recent ten-year capital strategy proposes cuts of $1 billion over the previous plan. The mayor hopes to offset the cut with federal funds from the Housing Development Corporation and the Lower Manhattan Development Corporation, but this money does not fill the gap.

"We are facing the worst housing crisis in 50 years," said Joe Weisbord of Housing First. "Even with the mayor's plan, we are back to spending less [in the capital budget] than we planned to in 2002."

Parks

Capital funding for parks has remained fairly constant in recent years. However, parks advocates warn that the capital budget is being used to make up for cuts to the annual operating budget. For example, parks workers who do regular maintenance are being laid off, causing equipment to deteriorate more quickly. The city then makes up for this by ordering a capital overhaul, sometimes as soon as five years after the previous one.

"The parks department has to rely on capital money to replace equipment, rather than paying for ongoing maintenance," said Stephanie Elson of New Yorkers for Parks. "This will cost the city more in the long run, especially when you consider the interest being paid on the debt."

Sanitation

Since the closing of the Fresh Kills landfill in Staten Island in 2001, the cost of disposing of the city's 36,000 tons of daily trash has risen.

Over the next four years, the city plans to spend approximately $1.2 billion, a 21 percent increase over the past, to improve the city's marine transfer stations. The stations are located on the city's waterways, where the waste will be loaded onto barges and shipped to train stations that haul trash out of state.

Sewers And Water

Nearly a third of the capital budget goes to pay for sewers and water systems. Over the next four years, the city plans to spend $7.5 billion, more than $2 billion than it did over the same time period in the past. The city is investing billions in pipes and water mains because they crack and break hundreds of times a year. Some of the city's pipes were built 150 years ago.

One of the most costly projects is the massive water tunnel 3, which will bring drinking water from upstate reservoirs into the city. When the tunnel is completed in 2020, it will cost an estimated $6 billion. The tunnel construction began in 1969 and has been halted several times because of a lack of funds.

Debt for construction on sewers and water mains is backed by bonds from the Municipal Water Finance Authority and New Yorkers' monthly water bill.

Transportation, Roads, Bridges

Over the next ten years, the city estimates that it will have to spend $9 billion to maintain roads, bridges, tunnels, and mass-transit. As in the past, most of the money goes to big infrastructure projects like maintaining bridges. In fact, repairs to roads and bridges consume 84 percent of the transportation capital commitments. Street resurfacing will cost an estimated $2.3 billion over the next 10 years, an increase of 13 percent.

Between now and the year 2013, the city will contribute $748 million to the New York City transit capital budget, which pays for new subway cars and track repairs.

However, projects like the Second Avenue subway, the new lower Manhattan transit hub, and the extension of the 7 train into the west side of Manhattan are not included in the city's current plan.

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